Investor digs in against Dorel deal

Cerberus Capital Management LP's plan to help take a Quebec toy- and bike-maker private has kicked off a feud between the company's founding families and a top shareholder.

The battle began when Dorel Industries Inc. — which makes baby toys, strollers and car seats as well as bicycles and home furnishings — announced a takeover agreement on Nov. 2 with Cerberus and members of the Schwartz family. The buyers offered to pay outside investors $14.50 for each share.

Dorel's second-biggest outside shareholder, Montreal-based asset manager Letko, Brosseau & Associates Inc., fired off a release hours later vowing to vote against what it called an “opportunistic” deal that “significantly undervalues the company.”

While squabbles between founders and outside investors aren't new, the fight between Dorel and Letko Brosseau is rare in that the money manager has a shot at upending the buyout. The Dorel deal needs to be approved by a majority of the company's minority, non-family shareholders.

That's a much easier hurdle to block the deal for unhappy shareholders like Letko Brosseau, which said it owns about 13 per cent of Dorel's subordinate shares.

That trails only Fidelity Management's 18-per-cent stake, Bloomberg data show. Family shareholders own 19 per cent of the Montreal-based company through both share classes and control about 60 per cent of the vote because of a dual-class share structure.

Dorel has often traded at or above the offer price since the deal was disclosed, indicating investors expect a higher bid. The stock has surged more than tenfold from a March low, driven by a pandemic-induced surge in demand for bicycles. Dorel closed up slightly at $14.41 Friday in Toronto trading.

The plan to take Dorel private began last December, when the family owners told the board they planned to seek a buyer. The board formed a special committee to supervise the process and hired BMO Capital Markets as an adviser. TD Securities later provided a fair-market value range of $14 to $17 a share for the firm. More than 25 possible suitors were contacted before Cerberus was granted exclusivity on Sept. 4, Dorel said.

The Cerberus offer represents a 32-per-cent premium to Dorel's closing price on Sept. 4, when the family shareholders granted exclusivity to the New York-based firm, Dorel said Friday in a statement.

“The family shareholders believe that the arrangement is a win for all of Dorel's stakeholders, including the public shareholders,” chief executive Martin Schwartz said in the statement.